Kristen Ambos
Chief Production Officer-Midwest | NMLS: 239731
Chief Production Officer-Midwest | NMLS: 239731
Being self-employed can provide tremendous flexibility and opportunity, but it can also make getting a mortgage more complicated.
Business owners routinely use legitimate deductions for vehicles, equipment, employees, supplies, insurance and other operating expenses. Those deductions can be good business and tax planning, but they may also reduce the income that appears on a tax return.
When traditional mortgage underwriting relies heavily on that taxable income, a successful business owner can sometimes find that the mortgage amount they qualify for does not reflect their broader financial picture.
That is where alternative mortgage programs such as bank statement loans and DSCR loans may become part of the conversation.
Traditional mortgage programs generally require lenders to document a borrower's qualifying income according to specific guidelines.
For a salaried employee, that can be relatively straightforward. For an entrepreneur with multiple businesses, fluctuating revenue and significant business expenses, the calculation can be much more complicated.
The important point is that difficulty qualifying conventionally does not automatically mean a borrower has exhausted every mortgage option.
A mortgage professional experienced with self-employed borrowers can evaluate whether another eligible program may provide a better fit.
A bank statement loan is an alternative-documentation mortgage program that may allow an eligible self-employed borrower to establish qualifying income through bank statement activity rather than relying exclusively on traditional tax-return calculations.
The lender reviews qualifying deposits over the required period and applies the specific program's income calculation methodology.
This does not mean every dollar deposited into an account automatically becomes qualifying income. Business expenses, eligible deposits, account type, ownership history and other program requirements can affect the calculation.
The advantage is that the lender may have another method of evaluating the cash flow generated by the borrower's business.
Depending on the program and borrower, bank statement financing may be available for an eligible primary residence.
This is an important distinction from the DSCR financing discussed in Episode 28 of the Always on Point Podcast.
A self-employed borrower who wants to purchase a home they plan to occupy should talk with a mortgage professional about the programs available for that specific occupancy type.
DSCR stands for debt service coverage ratio.
DSCR financing is commonly associated with investment real estate. Instead of focusing primarily on the investor's personal tax-return income, the underwriting analysis considers the property's qualifying rental income relative to its required housing expense or debt service.
That can make DSCR financing particularly interesting to real estate investors whose personal tax returns may not fit traditional underwriting requirements.
It is important to remember that DSCR financing still has guidelines. Credit, property type, rental income, loan-to-value, reserves, documentation and other factors can affect eligibility.
The DSCR program discussed in Episode 28 is an investment-property financing option and is not intended for an owner-occupied primary residence.
That distinction matters.
Borrowers should always be accurate about how a property will be occupied and work with their lender to select a program appropriate for the property's intended use.
The simplest way to understand the difference is to ask what is being financed and how qualifying income is being evaluated.
A bank statement program may help an eligible self-employed borrower establish qualifying personal income through bank statement activity.
A DSCR program may help an eligible real estate investor finance an investment property based in significant part on the economics and qualifying rental income of that property.
Neither is automatically better.
They solve different financing problems.
Episode 28 also explores a pattern familiar to many entrepreneurs.
Someone may begin with one successful business, accumulate capital and then look for a way to diversify. Real estate can become one of those opportunities.
Ana Curiel discusses seeing this pattern among entrepreneurs in the Green Bay area, including business owners who begin in one industry and eventually expand into rental property or additional businesses.
An entrepreneur might purchase a rental property, build equity, acquire another property and eventually develop a larger portfolio.
Existing real estate equity may also become part of that strategy. Depending on eligibility and available programs, an investor may explore refinancing an existing property and using available proceeds toward another investment.
The financing strategy needs to be evaluated carefully because borrowing against existing real estate creates new debt and costs.
One of the most useful lessons from Episode 28 has nothing to do with a particular loan program.
Tell your mortgage professional about your complete legitimate financial picture.
If you operate more than one business, have eligible side-business income, own investment property or maintain assets in multiple accounts, that information may matter.
A mortgage professional cannot evaluate an option they do not know exists.
That does not mean every asset or income stream will qualify. It means having complete information makes it possible to evaluate the situation under the appropriate guidelines.
Green Bay and Northeastern Wisconsin have entrepreneurs working across construction, restaurants, professional services, manufacturing, property management and countless other industries.
Their financial situations are rarely identical.
That is why a mortgage conversation for a self-employed borrower should begin with understanding the business, income, assets, credit and property goals rather than trying to force every borrower into the same qualification model.
In Episode 28, Kristen Ambos is joined by bilingual real estate agent Ana Curiel to discuss how these conversations can also reach Spanish-speaking and bilingual members of the Green Bay community.
Kristen Ambos, Wisconsin Mortgage Lender at Point Mortgage Corporation, works with borrowers to evaluate mortgage options based on their individual circumstances.
Program requirements vary. Certain bank statement programs use eligible bank statement activity as an alternative method of documenting qualifying income. A mortgage professional can explain the documentation required for a specific program.
Requirements vary by program. Episode 28 discusses 12 months of bank statements as a possible starting point for certain situations, with additional history potentially affecting available options. Current guidelines should always be verified before applying.
The DSCR financing discussed in Episode 28 is designed for investment properties rather than owner-occupied primary residences.
Certain investment-property programs may permit eligible entity ownership. Mortgage eligibility and the legal or tax advantages of an LLC are separate questions. Borrowers should consult their mortgage professional, CPA and legal adviser as appropriate.
Rates, fees and terms vary. Alternative-documentation and investment-property programs can be priced differently from conventional mortgages because the qualification requirements and risk characteristics are different. Compare the complete financing structure rather than focusing only on the advertised interest rate.
If you're self-employed and have assumed that your tax returns automatically prevent you from buying a home or investment property, the next step is not to guess.
It is to understand the numbers.
A review of your business, income, assets, credit and property goals can help determine which mortgage programs may be worth exploring.
Chief Production Officer-Midwest
Point Mortgage Corporation | NMLS: 239731